A hedge fund with net asset value of $54 per share currently has a high water mark of $57. Suppose it is January 1, the standard deviation of the fund's annual returns is 40%, and the risk-free rate is 2%. The fund has an incentive fee of 20%. Required: a. What is the value of the annual incentive fee according to the Black-Scholes formula? (Do not round intermediate caiculations. Round your answer to 2 decimal places.) Annual incentive fee b. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its total return? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual incentive fee c. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its return in excess of the risk-free rate? (Treat the risk-free rate as a continuously compounded value to maintain consistency with the Black- Scholes formula.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual incentive fee

A hedge fund with net asset value of $54 per share currently has a high water mark of $57. Suppose it is January 1, the standard deviation of the fund's annual returns is 40%, and the risk-free rate is 2%. The fund has an incentive fee of 20%. Required: a. What is the value of the annual incentive fee according to the Black-Scholes formula? (Do not round intermediate caiculations. Round your answer to 2 decimal places.) Annual incentive fee b. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its total return? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual incentive fee c. What would the annual incentive fee be worth if the fund had no high water mark and it earned its incentive fee on its return in excess of the risk-free rate? (Treat the risk-free rate as a continuously compounded value to maintain consistency with the Black- Scholes formula.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Annual incentive fee

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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